Master Degree Project in Innovation and Industrial Management
Elevating the Work with Inbound Open Innovation
A multiple case study on multinational companies
Erik Kaiser and Dennis Salomonsson
Supervisor: Rick Middel Master Degree Project Graduate School
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ELEVATING THE WORK WITH INBOUND OPEN INNOVATION Written by: Erik Kaiser and Dennis Salomonsson
© Erik Kaiser and Dennis Salomonsson
School of Business, Economics and Law, University of Gothenburg, Vasagatan 1, P.O Box 600, SE 40530 Gothenburg, Sweden
Institute of Innovation and Entrepreneurship All rights reserved.
No part of this thesis may be reproduced without the written permission by the author. Contact: erikekaiser@gmail.com, dennis.salomonsson92@gmail.com
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Abstract
Many large companies fail to jump on subsequent technological waves affecting industries in tandem with ever-increasing competitive landscapes. To avoid being outcompeted, companies have to stimulate their innovative and explorative capabilities. One way for companies to do so is by harnessing the external environment of competent partners that is embedded around the focal company. This way of closely collaborating with external partners is called Open Innovation, a term coined by Henry Chesbrough in the early 2000’s.
This thesis aims to examine how large multinational companies ought to work with Open Innovation in order to do so as efficacious as possible. More specifically, it aims to elaborate on what organisational modes of governance and structure, and which partners and practices, that are beneficial to Open Innovation in the context of large multinational companies. Due to absence of academia within the field of how Open Innovation practically should be managed, a qualitative multiple case study research is being conducted. Large multinational companies are being interviewed in order investigate if there are any preferable ways of working with Open Innovation. The main results of this study are twofold. Firstly, increased top-down governance with greater coordination of Open Innovation by top managers seem to be vital for elevating a company’s results of Open Innovation. Secondly, while most companies manage to collaborate with their already established partners such as customers and suppliers, they tend to face hardships with harnessing start-ups and innovation intermediaries. Albeit these two partners are being considered as highly important to large companies, especially in the recent time, many large companies fail to implement efficient practices for harnessing them. Nonetheless, large companies must deal with this inevitable challenge in order to stimulate their innovative and explorative capabilities for fostering innovations.
Key words: Open Innovation, Governance, Structure, Partners, Practices
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Acknowledgements
Throughout this project we have experienced help and support from people who we would like to thank, for on our own, this thesis research would not have been possible.
First, we want to express our great appreciation to Magnus Bergendahl at SCA, for giving us the opportunity to conduct this thesis research. He contributed with persistent guidance, enthusiasm for the topic, and valuable critique during this thesis research. We would also like to offer special thanks to all interviewees, both at SCA and external companies, for providing us with necessary empirical data, contributing to the outcome of this thesis.
Finally, we want to extend our gratitude to our university supervisor Rick Middel, for giving us continuous feedback and input, which has been essential to this project.
“No one has monopoly on knowledge”
- Henry Chesbrough
Gothenburg, 30th May, 2017
_______________________ _______________________
Erik Kaiser Dennis Salomonsson
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Table of Content
1. INTRODUCTION 4
1.1BACKGROUND 5
1.2SCA AND OPEN INNOVATION 6
1.2.1SCA 6
1.2.2OPEN INNOVATION AT SCA 7
1.3PROBLEM DISCUSSION 7
1.4PURPOSE 8
1.5RESEARCH QUESTION 8
1.5.1DELIMITATION 8
1.6RESEARCH OUTLINE 9
2. THEORY 10
2.1OPEN INNOVATION 10
2.1.1OPEN INNOVATION IN A BUSINESS ARCHITECTURE 11
2.1.2INBOUND OPEN INNOVATION 11
2.2OPEN INNOVATION MOTIVES 12
2.3ORGANISATIONAL GOVERNANCE AND STRUCTURE FOR OPEN INNOVATION 14 2.3.1WHY ORGANISATIONAL STRUCTURE AND GOVERNANCE MATTER 14 2.3.2MODES OF STRUCTURING AND GOVERNING OPEN INNOVATION 15 2.4PARTNERS AND PRACTICES FOR INBOUND OPEN INNOVATION 17
2.4.1OPEN INNOVATION PARTNERS 18
2.4.2OPEN INNOVATION PRACTICES 19
2.4.3CONCLUDING REMARKS AND SYNTHESIS OF LARGE COMPANIES INBOUND OIACTIVITIES 20 2.4.4BREADTH AND DEPTH IN OPEN INNOVATION PARTNERSHIPS 21
3. METHODOLOGY 22
3.1RESEARCH STRATEGY 22
3.2RESEARCH DESIGN 22
3.2.1MULTIPLE CASE STUDY 22
3.3RESEARCH METHOD 23
3.3.1SEMI-STRUCTURED INTERVIEWS 23
3.3.2SECONDARY DATA 23
3.4SELECTION CRITERIA OF EXTERNAL COMPANIES 23
3.5INTERVIEWS 24
3.5.1PRESENTATION OF RESPONDENTS AT SCA 25
3.5.2PRESENTATION OF RESPONDENTS AT THE EXTERNAL COMPANIES 25
3.5.3VERIFICATION OF DATA 25
3.6DATA ANALYSIS 25
3.7RESEARCH QUALITY 26
3.7.1VALIDITY 26
3.7.2RELIABILITY 26
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4. EMPIRICAL FINDINGS 27
4.1GENERAL FINDINGS ABOUT OI 27
4.1.1OPEN INNOVATION IN GENERAL AT SCA 27
4.1.2OPEN INNOVATION IN GENERAL AT EXTERNAL COMPANIES 28
4.2OPEN INNOVATION MOTIVES 29
4.2.1OPEN INNOVATION MOTIVES AT SCA 29
4.2.2OPEN INNOVATION MOTIVES AT EXTERNAL COMPANIES 29 4.3ORGANISATIONAL GOVERNANCE AND STRUCTURE FOR OPEN INNOVATION 31 4.3.1ORGANISATIONAL GOVERNANCE FOR OPEN INNOVATION AT SCA 31 4.3.2ORGANISATIONAL GOVERNANCE AND STRUCTURE FOR OPEN INNOVATION AT EXTERNAL COMPANIES 32 4.4PARTNERS AND PRACTICES FOR INBOUND OPEN INNOVATION 36 4.4.1OPEN INNOVATION PARTNERS AND PRACTICES AT SCA 36 4.4.2OPEN INNOVATION PARTNERS AND PRACTICES AT EXTERNAL COMPANIES 38
5. ANALYSIS 44
5.1GENERAL FINDINGS ABOUT OPEN INNOVATION 44
5.2OPEN INNOVATION MOTIVES 45
5.3ORGANISATIONAL GOVERNANCE AND STRUCTURE FOR OPEN INNOVATION 46 5.4PARTNERS AND PRACTICES FOR OPEN INNOVATION 50
6. CONCLUSION & RECOMMENDATIONS 55
6.1CONCLUSION 55
6.2RECOMMENDATIONS FOR SCA 58
6.2.1ORGANISATION AND STRUCTURE 58
6.2.2PARTNERS AND PRACTICES 58
6.2.3KEY ACTIONS 59
6.3FUTURE RESEARCH 60
TABLE OF TABLES
Table 1 – Ranking of OI motives Table 2 – Ranking of partners Table 3 – Ranking of practices TABLE OF FIGURES
Figure 1 – Organisational chart SCA (SCA, 2015b) Figure 2 – Open Innovation (SCA, 2013)
Figure 3 – Ways of governing and structuring Open Innovation Figure 4 – Description of struture and governance modes Figure 5 – Ranking of OI partners’ usage and importance
Figure 6 – Classification of organisational governance and sutrcture of OI Figure 7 – Desired state of organisational OI governance and structure Figure 8 – Analysis of SCA’s partners in regards to importance and usage
Figure 9 – Analysis of which OI partners’ importance based on empirical findings compared to theory
Figure 10 – New structure and governance modes beneficial to SCA Figure 11 – SCA’s current ranking of partners and provided
Figure 12 – Key actions for SCA
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1. Introduction
1.1 Background
The world is changing. It has done so for ages. But especially since the dawn of human civilisation around 8000 BC in the region of the Fertile Crescent in the Middle East, change has picked up pace and not slowed down ever since (Maisels, 1998). Change affects human life in many, different ways, and is therefore a factor that every business must consider when constructing strategies for the future. Throughout modern history and especially in the last decades, there are several prominent examples of companies failing to jump on the next technological wave affecting the industry, e.g. Polaroid and Kodak in the photography industry (Zhou & Wu, 2010), and Blockbuster Inc. and Borders Group in the business of physical distribution of media (Braun & Latham, 2012). These companies, amongst others, all failed to innovate, which lead them from being leaders in their industries to bankruptcy in a couple of years. Failing to innovate can be considered a part of the competence trap that companies with strong technological capabilities can get caught in. They are oftentimes strong in exploiting existing technological capabilities, but fail in the explorative aspect of product innovation and thus get stuck with only incremental innovation (Zhou & Wu, 2010).
To tackle the challenge of change and survive in the industry, the development of strategic flexibility in resource allocation and coordination is a necessity. Companies must stimulate greater exploration of new technologies and markets to expand its innovative capabilities, and thereby avoid the competence trap. One way to do so according to Zhou and Wu (2010) is by developing resources that can deal with abrupt changes in the business environment, which increases companies’ explorative capabilities. One tool for expanding a company’s innovativeness and explorative capabilities is by accessing the external environment that is embedded around the company. This way of working is called Open Innovation (OI). This is a new paradigm and is changing the way of how companies perceive the external environment and its different actors. The new paradigm has received a lot of attention by many researchers and practitioners, especially by the founder of the term, Henry Chesbrough from the Haas School of Business at UC Berkeley.
OI is a result of a shift in the knowledge landscape during the last circa 30 years that businesses have been exposed to. Several factors have caused an erosion in the knowledge monopoly that large companies had created for themselves by building their product development on extensive internal research and development (R&D) centres, also referred to as closed innovation. During the age of the closed innovation paradigm, starting in the early 20th century, large corporations had an internal approach to R&D, which fitted well with the existing knowledge landscape at that time. There was, compared to today, a low amount of external knowledge to build upon outside the company and the government funding of R&D was low compared to modern days (Chesbrough, 2003). According to Chesbrough (2003), there are four distinct erosion factors to the closed innovation paradigm. The first factor was the increased availability of college graduates in the post-war period. This increased the employee base for companies that could develop new and useful knowledge for commercial use. The second erosion factor of closed innovation was the venture capital market. In the 1980s, ideas and knowledge of researchers started to leak out of the R&D centres the large organisations possessed, and were developed and commercialised outside of these. The first and second erosion factors also created the third erosion factor. In the
6 closed innovation system, the tension between the incentives for researchers and product developers created a buffer of ideas between these distinct phases. These ideas and inventions, which were not developed further inside the focal organisation, could be developed outside the organisation, due to the mobility of employees and venture capital.
The fourth erosion factor was the increased capabilities of external suppliers. In the last decades, the Internet is considered as the fifth erosion factor for the closed innovation paradigm, as it helps to diffuse knowledge on a global scale (Chesbrough and Bogers, 2014).
The OI paradigm is based on the fundamental fact that the pool of knowledge outside the company is larger than on the inside. The majority of scientists and researchers will work outside rather than inside the focal company. This paradigm implies that the focal company should focus on their core capabilities and use their scarce resources in the most efficient way in tandem with letting external ideas be harnessed. By exploring what is outside the company’s boundaries, new possibilities related to innovation can emerge. However, OI creates new requisites, and hence challenges that the company needs to address to establish a well-functioning system supporting the new way of working with innovation.
Innovation structures, governance, management and processes need to be reshaped and restructured in order to create a system where OI thrives. (Lakemond & Tell, 2016)
1.2 SCA and Open Innovation 1.2.1 SCA
Svenska Cellulosa Aktiebolag (SCA) is a leading global hygiene and forest product company founded and based in Sweden, with local offices spread across the globe. The company develops and produces sustainable personal care, tissue and forest products. Their product portfolio within these three segments includes a great variety of renowned brands such as Libero, Tork, Libresse and Tena. Every day, more than 500 million people worldwide are users of SCA’s different products in approximately 100 countries. The group has around 46,000 employees worldwide and their sales reached SEK 117 billion in 2016 (SCA, 2017a).
Innovation is a top priority at SCA and comprises one of the company’s three strategic priorities. According to SCA, innovation is a crucial driver for growth and profitability, and is therefore deeply embedded in the company’s strategy and business model. Innovation is essential as it enables them to build their brands, to meet their consumer and customer needs, and hence ensure strong brands and attractive offerings. For SCA, innovation is based on market trends, consumer and customer insights, new business models, and new technologies. Particular attention is paid to exploring new ways of broadening their product portfolio and expanding their range of services (SCA, 2017b).
To support the innovation processes, SCA has built up a well-developed innovation culture where innovation teams across the globe together are working towards the goal to increase the pace of innovation, ensure that all segments have a competitive and balanced portfolio of investments, and capitalise on global economies of scale (SCA, 2017b). As could be viewed in the organisation chart depicting SCA’s organisational structure, they have established three global units in addition to their seven business units. The Global Hygiene Category (GHC) unit, highlighted in blue in Figure 1, which constitutes one of the global units, has a global responsibility for innovation and customer and consumer brands in the
7 hygiene area (SCA, 2015b). Within GHC, a unit is composed of individuals with overarching responsibility of innovation processes across the different business units, as well as approximately 50 innovation teams that are belonging to specific business categories.
Figure 1 – Organisational Chart SCA (SCA, 2015b)
1.2.2 Open Innovation at SCA
An important feature for SCA in the process of creating innovations is the work with OI, and has been so since 2006 when SCA decided to systematically start to work with it (SCA, 2015a). According to SCA, OI means to cooperate with external parties, and it comes with a number of benefits. For instance, it enables them to speed up their development processes, cut R&D costs and provide input from adjacent industries (SCA, 2017). Also, OI is paramount for SCA when it comes to find novel ways to market their different offerings (SCA, 2016). Their operation of OI has generated some concrete examples of innovations that now are included in their range of customer offerings (SCA, 2015a). One example is Tork EasyCube, an IT-based real-time service that provides oversight of when toilets need to be cleaned or dispensers have to be refilled in public restrooms. Without opening up their innovation processes for external input through OI practices, this innovation, amongst others, would not exist on the market today.
1.3 Problem Discussion
OI has been an important cornerstone to SCA’s innovation practices for more than a decade.
During this time period, SCA has developed a broad set of OI practices that have generated successful innovations. Albeit SCA possesses a well-developed way of working with OI, they are aware that continuous improvements and adjustments are vital as the external environment constantly changes, and that their way of practicing OI should be developed and enhanced continuously. Thus, SCA is currently revising their way of working with OI, and is about to set a new OI strategy by the end of 2017. Specific issues have yet to be evaluated and revised before the creation of a strategy can take place.
Together with SCA two essential areas particularly important to investigate were identified, which will have potential to contribute with insights to SCA’s new strategy. The first area is
8 concerning the organisational structure and governance of OI actions. The second area is concerning their network of inbound OI partners and practices. For this thesis, it is important for readers to keep in mind that the research scope is defined based on practical reasoning by SCA, and not through academically research and identification of specific areas. One of the main issues is however that there is a lack of academic research in the field of OI on how companies practically should operate their organisations in regards to OI processes, and what set of partners and practices to use in order to get the most innovation for the money invested. A benchmark on other large companies working with OI can bridge the gap of academic literature and contribute to SCA with useful insights on how to elevate their OI.
1.4 Purpose
This thesis aims to provide SCA with further insights for their work with inbound Open Innovation, and provide the Open Innovation-team with concrete measures on how they can elevate their work with inbound Open Innovation. In a larger perspective, this thesis’ purpose is to contribute towards the development of the company's Open Innovation strategy which is to be set by the end of 2017.
1.5 Research Question
With the current situation at SCA, combined with the problem discussion, the main research question for this thesis has been formulated accordingly:
● How can SCA act to elevate their work with inbound Open Innovation?
The main question is complemented by two subqueries:
○ What organisational structure and governance modes are beneficial to Open Innovation?
○ What partners and practices are beneficial to Open Innovation?
1.5.1 Delimitation
In this study, we have addressed actions related to inbound OI partners and practices, and organisational governance and structure. An analysis of all possible actions to elevate one’s work with OI include a considerably broad range of different activities, such as IP rights, leadership, internal culture, resource allocation, and risk mitigation, among others. Hence, this research will not cover all aspects of actions and thus the reason why other aspects than the two mentioned in the subqueries have been excluded.
9 1.6 Research Outline
This thesis’ research starts with identifying SCA’s essential areas of research connected to the company’s work with OI, in order to outline a relevant scope useful for SCA. The scope is a result of input from both academia and SCA as an organisation. Once the scope is set, a literature review is conducted to create a theoretical fundament and framework closely tied to the research question. After the literature review, the research strategy is set so the gathering and analysis of the data is as precise as possible. In this step, relevant interviewees at SCA and external companies are decided and contacted in collaboration with the supervisor at SCA. The next step is to gather data from interviewees at SCA and chosen external companies, and subsequently compiling and verifying it. The last step in this research is the analysis of the given data, providing answers to the research question as well as recommendations to SCA.
Introduction
Outline of the thesis’ background, SCA, and the related problem discussion.
Theory
Elaborates on relevant theories and frameworks in the field of Open Innovation, related to the chosen research question.
Methodology
Presentation of the overall approach and chosen research strategy and design.
Empirical findings
Compilation and verification of primary and secondary data from SCA and selected external companies.
Analysis
Application of theory to empirical findings, and comparison of SCA’s and the external companies ‘empirical findings.
Conclusion
Answers to the research question, recommendations for SCA, and future research proposals.
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2. Theory
2.1 Open Innovation
Searching for knowledge and innovations outside one’s organisational boundaries is not a new phenomenon. Collaboration with external partners to enhance products, services and processes occurred long before the term OI was introduced (Trott & Hartmann, 2009).
However, it was not until 2003, when Henry Chesbrough publicly coined the term Open Innovation, that it became a fixed field in research. Since then, OI has received great attention among academics and practitioners. Thus, we will use some of Chesbrough’s academic work in order to define the core meaning and implication of the term. One of the most used definitions of OI presented by Chesbrough is the following:
“The use of purposive inflows and outflows of knowledge to accelerate internal innovation, and expand the markets for external use of innovation, respectively. The Open Innovation paradigm assumes that firms can and should use external ideas as
well as internal ideas, and internal and external paths to market, as they look to advance their technology”
(Chesbrough et. al., 2006) Many revised definitions of OI have evolved since then, both by Chesbrough as well as other researchers. The core idea of OI has however remained stable, built on the notion that there is a wide spread of knowledge in the economy society, beyond the borders of the focal company (Chesbrough & Bogers, 2014).
The emergence of the term Open Innovation, supported by the erosion factors of the closed innovation paradigm earlier presented in the introduction chapter, has led to a paradigm shift where many companies move from a closed approach of working with innovation to a more open approach. That is, companies do not any longer solely rely on internal sources of competence. Figure 2 illustrates how innovation processes no longer entirely are maintained internally. The holes in the funnel represent pathways for external ideas to enter the focal company’s internal innovation processes, and internal ideas to reach beyond the firm’s borders to external parties. This is what is considered to be inbound and outbound OI. The next important aspect of the model is the market where any given technology ends up being used. Earlier, technologies were created internally and more or less resulted in products exclusively for the focal company’s markets. With OI, ideas and technologies can still be innovated internally to enrich the focal company’s current market, but also be licensed or sold to another company, or even created by an external actor and brought in by the focal company. In an ecosystem of companies, this allows different actors to integrate external and divest internal knowledge. Thus, this funnel should be set into perspective in an ecosystem of many different OI funnels, which all interact to utilise the maximum amount of created knowledge and technologies.
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Figure 2 - Open Innovation (SCA, 2013)
2.1.1 Open Innovation in a Business Architecture
According to Enkel, Gassman and Chesbrough (2009), OI is a concept that should not serve as the single approach a company should have to innovation. This would lead to a loss in control and core-competences, and eventually a long-term loss in innovation success. The successful approach is to have a mixed approach of open and closed innovation and to use a broad approach to innovation in order to leverage various channels in the development of new products. According to Chesbrough (2003), internal research plays a critical role in the early stage of technologies’ evolution. Internal R&D is suitable for creating an interdependent architecture. This architecture is a theme of immature technologies, where researchers have not fully understood the whole technology and all its parts yet. As the technology evolves and becomes more mature, an interface emerges and the architecture of a technology becomes modular. In this stage, holders of a platform can use external technologies as plug- ins to their existing platform, without the fear of having any effects on other modules of the technology. Especially the inbound process of OI is applicable to modular technologies and products. High knowledge intensity and product modularity are important criteria for the companies that apply this process (Gassman & Enkel, 2004). This is in line with Chesbrough’s findings from his book “Open Innovation” (2003), where he states that product modularity is necessary in order to be able to apply external knowledge, as described earlier in this thesis. These companies tend to gain a higher advantage of using inbound OI.
2.1.2 Inbound Open Innovation
One can categorise three archetypes of OI by looking at the concept through a firm’s process perspective. OI can be conducted in an inside-out process, outside-in process, and through a coupled process (Enkel, Gassmann & Chesbrough, 2009). According to a review of research on OI conducted by West and Bogers (2014), the outside-in process, also called inbound innovation, is the predominantly researched archetype. Moreover, it is the process
12 that fits into the scope of this thesis, which is the reason for this chapter putting emphasis on this specific process in the field of OI. An important notice is that in academic research, the terms “outside-in process” and “inbound Open Innovation” are used interchangeably. We have decided to exclusively use “inbound Open Innovation”. Inbound OI’s purpose is to integrate external knowledge into the focal company in order to enrich the existing knowledge base that the focal company holds. This means that a company will cooperate with e.g. suppliers, customers, and different intermediaries and brokers of knowledge in order to enlarge the knowledge base. There are various partners to work with and practices to integrate external knowledge through, which we will elaborate on later in this chapter.
Chesbrough and Bogers (2014) present a similar view upon inbound OI. They state that this process requires organisations to open up their innovation process to external input and contribution via sourcing or acquisition. After opening up the process, the business model of the focal company will determine which external inputs and contributions will be further developed and brought to the market. An important term in the process of inbound OI is absorptive capacity. In order for an organisation to be able to integrate and utilise external input and contribution, the organisation need to develop this absorptive capacity. Inauen and Schenker-Wicki (2011) give a definition of absorptive capacity, connected to internal research. They define the capacity as “a firm’s ability to recognize the value of new information, assimilate it, and apply it to commercial products, processes, and services”.
They state that internal research provides a capacity to absorb external knowledge with sources in the external environment. This indicates that absorptive capacities are developed internally. However, Inauen and Schenker-Wicki (2011) also refer to research where this idea is criticised, proposing that absorptive capacities also can be gained by hiring new employees or by cooperating with external stakeholders or consulting firms. Chesbrough and Bogers (2014) also state that, based on previous research, the internal research is important in order to enable organisation to utilise external knowledge.
2.2 Open Innovation Motives
There are several different reasons why large companies desire to shift from a closed to a more open approach to innovation. Underlying determinants for engaging in OI are important to consider in this research since they have an impact on how companies strategically work with OI on a practical level, e.g. how OI is organised and what network of partners and practices that is utilised.
One distinction of the different determinants for engaging in OI is by dividing them into offensive and defensive motives (Huizingh, 2011; Lakemond & Tell, 2016). Offensive motives are characterised as development oriented, motivating companies to achieve innovation. Such motives are to access additional competence, explore and access new technology, and identify new business opportunities. Defensive motives on the other hand are focusing on the barriers perceived by companies when executing innovation related activities. These motives comprise reduce/share costs associated with innovation processes, shorten/accelerate an innovation’s time to the market, reduce/share risks associated with innovation processes, and increase flexibility (Lakemond & Tell, 2016). Previous studies have examined what determinants that are motivating companies to work with OI, and are presented in following paragraphs.
13 According to Huizingh (2011), earlier empirical studies have shown that both offensive and defensive motives are strongly related to the use of OI, but that offensive motives are more important than defensive motives. The same has been found to be applicable to Swedish manufacturing companies. A study on 176 Swedish manufacturing companies that integrate external technology and partners into their innovation processes has shown that the most prominent motives for working with OI are of offensive character (Lakemond & Tell, 2016).
The foremost motive is to access additional competence, followed by access new technologies and increased flexibility. In the bottom of the list, i.e. the least emphasised motives for working with OI, are to reduce/share risks of innovation, and to reduce/share costs of innovation.
Another quantitative study that has examined strategic motives of working with OI is Chesbrough & Brunswicker’s (2013) executive survey on OI objectives among large companies in Europe and US. Although not making a distinction between offensive and defensive motives, their result shows that offensive motives, based on above definitions, are the most important motives. According to their study, establishing new partnerships is the most important motive, followed by exploring new technological trends, and identifying new business opportunities. Reducing R&D costs per project and mitigating risks of innovation projects seem to be less relevant objectives for large companies.
Mortara et al. (2009) have also studied the reasons for adopting OI, but through the use of a qualitative research strategy. In the interviews and workshops they conducted, questions about the advantages of adopting OI compared to the conventional closed approach to innovation were asked. Their findings are based on compiled data of 36 companies, many of which are large renowned FMCG and industrial companies. Similarities to the above- mentioned studies can be detected, yet also some slight differences. Reducing time-to- market, explore new technologies, and access to competence and knowledge sources were highest ranked motives and approximately equally important. The first and third reason were especially important for FMCG companies according to Mortara et al. (2009).
Table 1 comprises a ranking of companies’ motives for engaging with OI. It is built upon a combination and aggregation from the above three presented papers, all examining the ranking of OI motives.
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Table 1 - Ranking of OI motives
2.3 Organisational Governance and Structure for Open Innovation 2.3.1 Why Organisational Structure and Governance Matter
To reap the benefits of working with inbound OI, the focal company must establish an organisational structure and system that enables them to efficiently operate with OI partners (Trott & Hartmann, 2009). OI is about integrating external knowledge with the internal knowledge that a company possesses (Lakemond & Tell, 2016). However, the traditional notion among large companies on organisational boundaries has its roots in transaction cost logic. In the emerging paradigm of OI, external partners in the ecosystem are viewed as central sources of knowledge. This is contrasting to the transaction cost logic and the traditional innovation paradigm, where R&D is merely developed internally. This poses challenges to theory about innovation in relation to firm structure and organisational boundaries (Tushman, Lakhani & Lifshitz-Assaf, 2012).
In order to implement an open approach to innovation, one has to recognise that old structures will not change quickly in a radical way. Due to several factors, an organisation can face rigidity and inertia when striving for a systematic change. According to Keupp and Gassman (2009), this internal rigidity in an organisation can be explained by the organisational structure. If the structure does not favour innovation in the first place, this can lead to opposition towards a transition to OI. This is a big challenge for companies to tackle, ranked as the most prominent challenge for companies, both for companies in the start of
Reduce/share risks of innovation Increase flexibility
Reduce/share costs of innovation Explore and access new tehcnologies
Shorten/accelerate time to market
Identify new ideas and business opportunities Access to additional competence trough new
partnerships
Offensive motives Defensive motives
Importance
High
Low
15 implementing OI and among those that are managing OI (Chesbrough & Brunswicker, 2013).
As mentioned earlier, OI implies that not all innovation activities are, nor should be, “open” to external parties. Some innovation activities should remain “closed” to others but the focal company. The strategic rationale thus is to adopt a mixed approach of open and closed structures (Enkel, Gassman and Chesbrough, 2009). One could say that external relationships and internal capabilities are rather complements than substitutes. Internal R&D has even synergies with openness to external actors. Dahlander and Gann (2010) put forward that investments in internal R&D can have positive impact on a firm’s absorptive capacity, which improve results from external idea scouting. Also, companies vary in the extent to which they can leverage external ideas. Organisations should therefore reconcile these divergent perspectives and embrace the notion of a complex organisation structure, where they ambidextrously pursue a range of different boundary options based on what fit them best (Tushman, Lakhani & Lifshitz-Assaf, 2012). For instance, in contrast to traditional firm-centred innovation processes, Tushman, Lakhani and Lifshitz-Assaf argue that OI processes are more decentralised, include intrinsic pro-social motives, and are peer-based.
2.3.2 Modes of Structuring and Governing Open Innovation
A company’s OI strategy and the way of working with its associated activities are often managed as a result of the interaction of different organisational factors and mechanisms, much dependent on what drives the impetus of OI (Mortara et al., 2009; Lakemond & Tell, 2016). At the one extreme, OI can be implemented in a very formal and structured fashion, while in the other extreme be informal and subtler. This is illustrated in Figure 3, which is an adaption of Mortara and Minshall’s framework from 2009. Their study on how large companies implement and manage OI has been conducted through a qualitative research approach, which partly included qualitative interviews with managers involved in OI.
Firstly, companies set and govern OI strategies either top-down or bottom-up, which is illustrated by the vertical axis. Top-down is when top-level managers consciously set OI as a part of the major innovation strategy, in which OI becomes an essential part of the corporate strategy. Through this mode, OI is governed consciously and in a step-change manner.
Bottom-up on the other hand implies that OI evolves evolutionary in the lower hierarchical parts of the company over time, driven by external factors. The idea of OI is thus rather an outcome of environmental causes than top-managers who have been convinced of the idea.
From that, a dominant model can evolve and be implemented in a more rational way.
(Mortara & Minshall, 2011; Mortara et al., 2009)
Secondly, organisational coordination and structure of OI is either managed through centralised or decentralised methods, illustrated by the horizontal axis. Thanks to the wide recognition OI has received, some companies have instituted central teams to support the change towards a more open approach to innovation. A centralised coordination method implies that the company employs a formal and structural organisational team that is responsible for the OI across the whole company. This approach relies on a central small group of managers who are in charge of the deployment of OI. Activities include e.g.
implementation of strategy, guaranteeing continual support for OI from the top of the firm, necessary internal OI training to others, and to develop an internal OI language. One could say that this group act as the company’s door to the external sources. On the other hand, a
16 decentralised coordination method implies that the company is managing OI through some specific functions or processes/products. In other words, it is when OI activities are distributed in different functions or processes/products of the company, and also managed from there. For instance, the different functions operate the OI activities independently, based on their own needs and decisions. (Mortara & Minshall, 2011; Mortara et al., 2009).
According to Mortara et al. (2009), companies that choose a top-driven strategically approach to OI tend to often rely on a centralised OI team that support the OI implementation and develop the strategy.
Figure 3 - Ways of governing and structuring Open Innovation (Adapted from Mortara & Minshall, 2009)
Mortara and Minshall (2011) conducted a research based on this particular taxonomy framework, in which they aimed to address the academic gap that prevails in how companies adapt to OI from an intra-organisational perspective. They found that, among FMCG companies including P&G, Unilever and KRAFT, the predominant implementation mode of OI was found to be top-down centralised. Top-down decentralised and bottom-up decentralised were found to be other adopted modes, however not deployed by FMCG companies. The bottom-up centralised mode seemed to be less relevant in their study, only adapted by one company in the study, which was an FMCG company. Another interesting finding is that some companies were working on a plan to change their OI implementation approach. A few organisations indicated a desired state of structuring and governing their OI through a top-down centralised approach instead. In other words, they felt the need for more coordination in their work with OI.
17 In order to facilitate and legitimise the classification of SCA, and the other external companies in the present study, based on this framework, a description of what features and characterizes each quadrant is presented, based on Mortara and Minshall’s paper from 2011.
Figure 4 - Description of structure and governance modes (Adapted from Mortara & Minshall, 2011)
It is difficult to draw any inferences from available literature on how successful companies choose to organise and structure their OI in spite its crucial relation to a successful OI performance. One reason not being able to draw any inferences from the literature is because of the lack of literature on the topic. Furthermore, Chesbrough and Brunswicker (2013) state that there is no dominant mode in how to organise OI. Some companies organise it top-down with little room for financial autonomy of lower managerial ranks, while other companies prefer to organise it bottom-up.
2.4 Partners and Practices for Inbound Open Innovation
In this section, we address two major building blocks that all have impact on how companies practically work with OI. The first building block address the set of partners a company can engage with in order to access external knowledge. The second building block is about what
Top-down strategically driven
Bottom-up evolutionary achieved
Distributed OI activities Centralised OI services
- A group of managers who manages the OI strategy top- down
- Execution of OI relies on a small and central group who rolls out OI to the rest of the organisation - OI team is responsible of building new relationships with external partners - OI strategy is initiated from the
top, but only happen in particular functions or products/
innovations
- OI is not rolled out across the whole organisation
- Idea of openness contrast with the traditional mind-set of those with long experience in the sector - Incremental innovation often remained closed
- OI is not formally recognised in the organisation. Not
implemented as a strategy, but still used
- External pressure for adopting to OI
- There is no central co-ordination of OI and its activities. It is rather a collection of processes and roles distributed through the organisation
- Some people, e.g. from the R&D department, that consider the usefulness and want to implement OI
- Employees in lower hierarchical levels, e.g. R&D, who are leading the OI thinking. They often work to get management aligned with OI and to push the OI adoption form top.
18 practices a company apply. Practices are actions a company can take in order to access the knowledge from the external partners. We will look at what partners and practices that do exist according to theory. Further, it will examine what partners and practices that are most important and used among companies based on previous studies.
2.4.1 Open Innovation Partners
The list of potential partners for the focal firm to open up their innovation processes towards and collaborate with when working with inbound OI is long, and stretches beyond traditional first-tier partners. Chesbrough and Brunswicker (2013), Lakemond and Tell (2016), and Schroll and Mild (2011) have all examined what type of partners that exist for larger companies in their pursuit of accessing and internalising external knowledge. Moreover, they have also looked at what partners are more used and more important than other types of partners. Lakemond and Tell, and Schroll and Mild, have examined what OI partners companies use, whilst Chesbrough and Brunswicker have studied what OI partners companies consider to be important. They have thus used various perspectives on companies’ relations to OI partners. Further, each research duo has conducted their studies in different contextual settings and have occasionally used different wordings for similar type of partners. The definitions of each partner in this section will be the same no matter whom we are referring to. That means that some researchers choice of definitions for the different partners have been modified for the convenience of the reader.
In Table 2 of the most important and used OI partners for companies to partner up with is a combination and aggregation of Chesbrough and Brunswicker’s (2013), Lakemond and Tell’s (2016), and Schroll and Mild’s (2011) findings. Despite their studies have been conducted in various contextual settings in terms of countries, sectors and company sizes, many similarities can be detected. Table 2 is following a particular order and starts from above with the most important and used partners.
❏ Customers
❏ Suppliers
❏ Universities and Research Institutes
❏ Consumers
❏ Innovation intermediaries and consultants
❏ Other companies (e.g. start-ups)
❏ Competitors
❏ Communities
Table 2 – Ranking of partners
However, since the authors have studied OI partners with different approaches, it would be useful to contrast the different approaches with each other. The below analysis has laid the foundation for the matrix that can be found in Figure 5. Chesbrough and Brunswicker’s (2013) executive survey on large companies in the European and US market found that, not taking internal employees into consideration, customers, followed by universities, suppliers, and consumers to be the most important inbound OI partners. Companies in other sector, specifically start-ups and entrepreneurs, were less important than the previous mentioned, but still considered as important. Less important innovation partners according to them are innovation intermediaries, competitors and communities. Lakemond and Tell’s (2016)
19 findings on Swedish manufacturing firms, ranging from small to large in size, have identified which partners that are most frequently used in their inbound OI activities. Despite examining the usage and not the importance of OI partners, their ranking has many similarities to the former author duo’s findings, yet some differences. Most used partners are, in particular order, customers, suppliers, and universities and research institutes. Less frequently used are competitors, consumers, and companies in other sectors. Innovation intermediaries were ranked in between the clusters of more and less frequently used partners. Lastly, Schroll and Mild’s (2011) study on companies in different industries located in 24 European countries demonstrates somewhat similar findings. Customers are found to be the most used partner, with consumers, suppliers and universities also in the top.
Communities, competitors and consultants were found to be less used. Unlike the other two studies, this study shows that consumers are ranked among the most used innovation partner. Conclusively, these three quantitative studies give an indication on what partners to be most important and most used by companies when applying inbound OI as a working method. The differences point out that factors such as the type of companies being studied, geographical scope, and the year of the research might have impact on the findings.
Figure 5 - Ranking of OI partners’ usage and importance
2.4.2 Open Innovation Practices
For a company to access external knowledge from an OI partner, practices have to be utilised. In our literature review, we noticed that there are many synonyms for the word practices, all of which are used interchangeably. In the present study, we use the term practice, which is a specific OI action that a company performs together with one or more partners.
- Innovation intermediaries &
consultants - Competitors - Communities Usage
High Low
Frequently
Less Frequently
-Companies in other sectors (e.g. start-ups) - Customers
- Suppliers
- Universities and research institutes - Consumers
Importance
20 Companies have a range of different inbound practices to choose among. Chesbrough and Brunswicker (2013) have through their executive survey compiled a list of different inbound practices that large companies can utilise, and which ones that large companies consider to be most important for them. Table 3 is complemented by Mortara et al. (2009) ranking of important practices harnessed by large multinational companies. The list is following a particular order and starts from the top with the most important practices.
❏ Customer and consumer co-creation
❏ Informal networking
❏ Sponsorship of selected universities
❏ University research grants
❏ Publicly funded R&D consortia
❏ Contracting of external R&D providers
❏ Idea and start-up competitions
❏ Corporate venturing units
❏ IP in-licensing
❏ Supplier innovation awards
❏ Co-branding
❏ Crowdsourcing (unknown problem solvers)
❏ Services through Open Innovation intermediaries
❏ Incubation of start-ups or science parks and external incubators
Table 3 – Ranking of practices
Customer and consumer co-creation is the highest ranked practice, and comprises activities where customers and consumers are involved in the generation, evaluation, and testing of novel ideas for processes, services, products and business models (Chesbrough &
Brunswicker, 2014). Other highly important actions are informal networking (e.g.
conferences or events), university research grants, and publicly funded R&D consortia (with other public or private organisations, fully or partly funded by governmental organisations).
Other practices included on the list are contracting of external R&D service providers (external service providers for specialized R&D service), idea and start-up competitions, IP in-licensing, supplier innovation awards, crowdsourcing, and services through open innovation intermediaries (contracting services of intermediary organizations specialized in OI) (Chesbrough & Brunswicker, 2013; Chesbrough & Brunswicker, 2014). The list of practices ranked in relative order, which could be found in section 2.3.5, are substantiated by Mortara’s et al. (2009) research on what they define as company OI activities. In addition to Chesbrough and Brunswicker’s survey, Mortara et al. (2009) add sponsorship of selected universities, corporate venturing units, co-branding and external incubators of start-ups and science parks as inbound practices large multinational companies engage in.
2.4.3 Concluding Remarks and Synthesis of Large Companies Inbound OI Activities
A summary of the two building blocks, namely partners and practices, has been conducted.
Earlier studies have shown to provide useful insights in how companies carry OI into effect.
However, the studies are conducted on a multitude of different companies, in different countries and different industries, and will in isolation not provide SCA with recommendations on how to elevate their OI performance. Thus, a multiple case study on
21 other companies will in tandem with these theoretical findings enhance the present study’s ability to answer the research question and its subqueries.
2.4.4 Breadth and Depth in Open Innovation Partnerships
It is important to investigate how to collaborate with external partners. Inbound OI implies that the focal firm proactively searches for ideas outside the firm’s boundary with the objective to internalise ideas and inventions, and eventually generate innovations from them.
It is the focal firm’s responsibility, and key issue, to strategically choose what they perceive to be the optimal balance concerning whom to partner with. Thus, the question of governance is a central question to the effectiveness of managing inbound OI. Tiwana, Konsynski and Bush (2010) mean that the type of governance, e.g. to which degree the governance is “open”, affect the dynamics of relationships in an ecosystem.
The way firms search for external sources is subject to what Laursen and Salter (2006), among others, refer to external search breadth and external search depth. Breadth is defined as the number of external sources or search channels that a company uses and relies upon in their OI activities. Depth is defined as the level or extent to which a firm draw deeply from the different external sources or search channels. Laursen and Salter describe that previous research supports the fact that a firm’s internal search strategy for external sources and search channels has a significant influence on its innovative performance.
Firms that have opener search strategies, i.e. those who search deeply and broadly, tend to be more innovative. The benefits are to some extent dependent on the industry in which a firm is present in (Laursen & Salter, 2006). In industries where the technical opportunities are high and where other firms heavily invests in search, a firm often has to search more deeply and broader in order to find the critical external knowledge sources. The opposite applies for industries where technical opportunities are low and where other firms tend to a larger extent focus on internal research. Thus, a managerial implication is that openness should to some degree be based on the industry in which a firm acts. However, another aspect to consider is the cost of search. The benefits of openness in the external search for innovation seem at some point undergo the entailed cost of search, and can be illustrated as an inverted U-shape. Reasons to why increased search costs, in terms of money, time, and effort, at some point exceed the benefits are because companies might over-search the external environment, or maintain too deep links with external sources (Laursen & Salter, 2006). Another managerial challenge is hence to determine what the “optimal” openness in terms of search strategy is.
Laursen and Salter (2006) also put forward that there are different stages of innovation in which the choice of broader or deeper search is crucial. For instance, in the early stages of a product life cycle, when the invention’s technological state is in flux, innovative firms should draw more deeply from a smaller number of key innovation partners. As a technology gets more mature and the specialist knowledge is more diffused in the network, a company should search across a wider range of external sources of innovation. This is somewhat in line with Garriga, von Krogh and Spaeth’s (2013) research, which found having many innovation partners, i.e. breadth, is beneficial for incremental innovation, whereas a deep collaboration with fewer partners, i.e. depth, is beneficial for radical innovation.
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3. Methodology
3.1 Research Strategy
The perspective of the specific topic being researched in this thesis is a rather unexplored field, thus a qualitative research strategy is preferred (Eisenhardt, 1989), and hence employed in this thesis. One of the main characteristic of this particular research strategy is that it emphasises words rather than data in the process of collecting and analysing data.
Compared to a quantitative research strategy, a qualitative approach processes gathered data without any predetermined goals, and will therefore not be locked to any new nor unpredicted data. This means that the research will be open to new and not predicted data (Bryman & Bell, 2011).
Moreover, the nature of the relationship between theory and research in this study will have an inductive stance, meaning that theory is an outcome of research. The process of induction implies that generalizable inferences will be drawn out of the observations. For this report, we started by developing and establishing a theoretical body with relevant and accepted theories. Once the process of theoretical reflection on the gathered empirical data was carried out, further data was found necessary to adapt and improve the theory part, i.e.
the theory was incrementally developed. Thus, an iterative process was used in this thesis, meaning that we went back and forth between theory and data (Bryman & Bell, 2011).
Qualitative research strategy has its disadvantages that one needs to be aware of.
According to Bryman and Bell (2011), one major potential disadvantage is that the results will have to be interpreted and analysed by the researches, which entail a risk of that the results will be biased. Consequently, generalisation of the results will be restricted and should be viewed within the context of the study. Another disadvantage is that qualitative studies might fall victim to subjectivity, they tend to rely too heavily on the researcher’s unsystematic view of what is important and significant (Bryman & Bell, 2011).
3.2 Research Design 3.2.1 Multiple Case Study
Multiple case study has been employed as research design in this thesis, which implies that the data has been gathered from a number of studied cases. It is a largely undertaken research design for the purpose to compare different cases included in a study (Bryman &
Bell, 2011). It enables the researcher to compare and contrast findings derived from the different cases. This is in line with the purpose of this study, which is to compare specific aspects of SCA’s way of working with OI to other case companies. This research design is also promoting theoretical reflection on the findings of SCA and the other cases. Based on this, one will be able to draw inferences on the findings and provide SCA with recommendations on how they can elevate their work with OI.
What has been important to consider is the choice of cases to study. Researchers should choose cases to study where they expect that they will learn the most from (Bryman & Bell, 2011). To ensure this, a list of criteria on what companies to include as potential research objects was developed together with SCA, and is presented more thoroughly later in the methodology chapter.
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Each case studied in this thesis has been compared and contrasted to SCA, and to relevant literature included in the theory chapter. An advantage of employing a multiple case study is that the subject being studied in the present study has little earlier academic research on it to sufficiently answer the research question. According to Bryman and Bell (2011), the multiple case study can generate data with more breadth in order eventually be able to draw conclusions.
3.3 Research Method
3.3.1 Semi-structured Interviews
One of the main aims of this study has been to gather practical relevant data on OI partners and practices, and organisational governance modes and structures that support and enhance internal OI processes. This data has been gathered from external companies that we, in collaboration with SCA, perceived as appropriate external case companies for the research purpose and question. To capture this data, a semi-structured interview approach was identified as the most suitable interview format.
The intention of the research is to get a deep and wide understanding of how other companies work with OI. According to Bryman and Bell (2011), this is one of the advantages of conducting semi-structured interviews. A semi-structured interview approach enables the researcher to guide the interview into a specific area and subject with the help of prepared interview guide, while simultaneously leave space for questions that might emerge as the researchers pick up on things said by the respondents. Also, it leaves flexibility for the respondent to fill in with comments and thoughts that not directly is related to the question being asked by the interviewer (Bryman & Bell, 2011). Consequently, semi-structured interviews will provide the research with a more complete picture of the topic. The semi- structured interview approach is also chosen due to the fact that the interview objects have different positions and backgrounds, and thus the questions need to be flexible and adaptable to each of the interviewee's specific knowledge.
3.3.2 Secondary Data
In addition to the interviews, secondary analysis is included to complement the research. A systematic literature review is conducted for gathering the secondary data. Various databases have been utilised for the search of literature. To optimise the search of relevant literature, key- and search words are used in a systematic manner. The secondary data is consisting of academic research papers, books, reports and websites.
3.4 Selection Criteria of External Companies
The process of getting interviews with external case companies, referred to as external companies in this study, constitutes of two main steps. Firstly, a list of criteria on relevant companies to include in the study is established together with representatives from SCA.
Secondly, out of this list, companies are asked to participate in the study. As mentioned earlier, appropriate companies to interview are identified together with SCA in order to ensure that as relevant companies as possible are asked to participate. Because of the low likelihood to be able to only interview competitors to SCA, or with similar products, innovation typology, or customer groups, extra carefulness is spent on the selection of
